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was at Microsoft in recent years, 2002-2005, and was recruited to bring some startup DNA into one of the business units (server and tools). I have a slightly contrarian opinion to Rob and Bill. Microsoft has many strengths - one of which is its rigorous hiring bar. This bar has historically lead to A-quality people in its organization. Talent was a huge advantage to the company, as many of its competitors were unable to maintain the same quality bar as the company. It is also no secret that Microsoft was historically one of the best and selective college campus recruiters - a good bulk of its new talent came directly from the leading graduate and undergraduate programs. (Incidentally, with time, other companies, like Google, Facebook and for a while, Trilogy, all learned from Microsoft's recruiting and talent acquisition processes.) Less spoken about, but an equally key variable in the talent game, is Microsoft's location. Being based outside of California (originally New Mexico, now Redmond) always meant MS had to worry less about talent poaching. Combined with its young workforce, MS developed a fairly insular culture. Even today most MS employees find that it's challenging to work with non-MS folks. You find that few MS employees have left the company to create successful new businesses - a) the company's rising stock in the 80s and 90s meant they didn't need to, and b) most employees who left MS found they were unable to function in the real world, and came back to the company. This insular culture, combined with geographic isolation, the lack of poaching and Bill's vision, all served Microsoft well in one key way. Microsoft was more able to take a long-term view of its businesses than most of its competitors. Microsoft vs. historical competition Looking back at Microsoft vs. its software foes, i.e. Digital Research, Quarterdeck, Borland, Wordperfect, Lotus, Netscape, etc there's an argument that Microsoft won these battles not just through good tactics and execution, but sheer persistence. Microsoft executives and senior management were able to maintain its long-term focus on what mattered to win the war, not just the battle. This long march persistence, can be contrasted by key short-term (and outright dumb) mistakes on the side of the competition. For instance, when Microsoft began its push into the browser market, Netscape decided to maintain two concurrent codebases for its browser. Netscape management thought this would allow Netscape to ship its releases at a faster pace than Microsoft and keep the feature war going. When Netscape 4.0 got trapped in muddle (it basically almost didn't ship) and went through all kinds of machinations including a ground-up rewrite, Microsoft was able to fully capitalize on the opportunity. This didn't just happen to Netscape. When Microsoft shipped Windows 3.0, Wordperfect decided not to support the new graphical operating system - for philosophical reasons. Their goal was to ignore it. This of course, gave Microsoft an entry point for Word. When Wordperfect finally did decide to support the new graphical user interface, they did an awful port that went out of its way to preserve Wordperfect's look and feel, down to its hideous keyboard commands, effectively throwing out the advantages of the new GUI. All this was enough to give Microsoft Word a wedge into the market, which eventually was enough to unseat the previously dominant and unbeatable Wordperfect. One has to wonder why in the heck didn't the Wordperfect executive team hedge and use some of its ample cash flow to fund a small Windows version, just in case? In virtually all of its major skirmishes with the rest of the software industry, you notice Microsoft maintained a steady march (sometimes leveraging monopolistic behavior, sometimes coming up with very clever ideas). But the fissure point for Microsoft to break into the category and become a winner usually emerged in the wake of a significant competitor mistake. When the competitor didn't crack, MIcrosoft found it very difficult, if not impossible, to win the battle. The most recent case in point is Google, but this is equally true in the money management space with Intuit vs. Microsoft money. The question to ask is why does this happen? Most software companies have a four year vesting period and are in environments that are competitive, meaning their engineers and talent are highly sought after. Most founders also get bored after achieving success. Looking back at history, many of the companies Microsoft competed against had key people or founders depart or check out, right around when the pressure got tough. They were vested and had made their money. Why bother? This led to bad decisions and gave Microsoft a chance to penetrate the market. As the company in the market with the long-term view - due to a geographically isolated talent base and Bill's leadership - Microsoft was able to stay in the game and wait it out. I could never figure out MS folks wouldn't leave, but for a lot of my colleagues, Microsoft was the only thing they knew after their 20s. I think the geographic farness from Silicon Valley meant people didn't think about anything but a life at Microsoft long-term, even after they had made their money. It made it a lot easier for the company to take a long-term view on the markets it wanted to win. Microsoft vs. competitors today There are many disparaging remarks floating around about Microsoft's ability to innovate, but you notice that this strategy of persistence and waiting for competitors to crack doesn't require fundamental innovation. It's an execution story. Microsoft has never been exceptionally great at producing new things. It hasn't needed to. All it had to do is absorb innovation, feed it back out, and wait for its competitors to stumble. The problem today is trends are shorter. Markets that had 10+ year windows yesterday change too quickly today. It's unclear if the categories today will even remain categories in a long time window. It's also harder to stay in the game against competitors. More businesses today have virtuous cycles, where by entering a market early and succeeding gives the company a natural advantage. This makes it difficult to catch up to an incumbent with a pure persistence approach. I also think more people have wisened up to Microsoft's persistence strategy. If you're ahead of Microsoft, simply stay ahead and don't do DUMB things, it's difficult for Microsoft to catch up - even with all of its advantages. Microsoft's challenges The key problem I see for Microsoft today is it fails to see it won through a strategy that is less relevant in a shorter product cycle, quicker hits environment of today. Few folks at the company would acknowledge Microsoft won primarily through its competitor's errors. It is anathema, particularly since Microsoft has historically had some of the brightest and most capable people in the industry. Internally the feeling is "what do you mean we can't succeed with who we have - look at who we are". The other problems have to do with management and poor pattern recognition. What worked well for the company in the 80s isn't as relevant today. But the people making the key decisions are the same group that came up through the ranks in the 80s. And things that were relevant for the persistence march, for instance, the creation of program management, a uniquely Microsoft approach to software development, are less relevant today. Program management allowed feature work and spec work to be handled by a separate tier, so Microsoft could maintain its steady march in a market. Program management is so institutionalized now that it can justify new things like the ribbon. My favorite Microsoft story was when I joined, I reached out to the Outlook team and said you guys have to offer better search in Outlook. The team said they had done the market research and search was not on the top 10 list of features people wanted in the product. I remember pushing back and saying this was a latent need - most people surveyed wouldn't know a "Google for Outlook" was possible and were thinking of a better Find, which wouldn't be helpful. It was a complete brick wall for me. Finally, Lookout came out, took off and Microsoft ended up "acquiring" a two-person company that was built on top of an open source project, Lucene. The list continues. Microsoft has a weak bench of new talent, and the company culture doesn't make it easy for them to succeed. The company is wired around paying your dues, which makes it impossible for lateral hires to do well. This has always been the case - it is very difficult for non-MS raised people to succeed in the organization. The company has tried to build GE-like programs to facilitate future leaders (I was in one of these programs) but the institutional nature of the place makes it way too difficult. The company also tries - often times foolishly - to link everything up to its core products. To me, this is attribution error. Microsoft believes it won because it linked up all of its products, which is true but not the sole reason. There is no reason in the world for a phone to be a Windows phone - by this I mean have a Windows UI. There is no need for a Start button on a phone. The folks who tried pointing this out were shot down (trust me on this). I know the Microsoft hardware team could have built a phone as good as the iPhone or current Android models, but they would have done it from the ground up - which is not what the company wanted. It is uniquely difficult at Microsoft to do something new and intentionally ignore its heritage. There's no reason this needs to be the case. The place could be shaken up. I always joke that if it wasn't for its sheer size, Microsoft would be a fantastic leveraged buyout candidate. It has two natural monopolies (both decreasing in relevance, but slowly), a great cash flow and balance sheet, no debt and is in desperate need of new management. Heck, just by breaking up its divisions, the company could probably unlock significant shareholder value. Finally, Microsoft has suffered from the same brain drain that affected its competitors. Some of the sharpest people at the company have either retired (Gates, Simonyi) or left (Glaser, Rich Tong, etc). And like most companies, the new hiring isn't on par with the old hiring. The company is getting weaker with each subsequent new hire